Brewster's Millions

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 KYC

Before we throw eggs at Coinbase for their KYC debacle, let’s take a look closer to home.

Right across the board then, public to private, data is stolen all the time. Indeed, there are identity factories in Asia that will sell you any and all the KYC you could wish to buy on pretty much anyone you want. Each time it happens, bigger fines, more security, more pain for the everyday person. 

The whole purpose was supposed to be to protect us from criminals but in fact the only people that profit from KYC are those same people. Obviously if you are nefarious, you don’t do KYC or you lie about it. The entire machinery self selects for exactly the wrong people. When will we admit the KYC monster has just turned around and eaten us? The whole industry it has spawned is a complete joke. Smile into your phone, turn your head, now send your passport, now send Medicare. Once you do, it's as good as gone forever. Older people and the less tech savvy stand absolutely no chance. In fact, specifically the people this nonsense is designed to protect are the ones hurt most by it.

It remains my biggest personal bugbear that I will never get over. The idea that you need to prove who you are. Why?

What's my solution? Once you cross the border and you are in Australia you should be good to go. The border is the KYC, it used to be anyway. Born here? When your excited dad goes and gets your birth certificate on day three, you’re good to go. That’s it, that’s my solution. 

You can feel free to email me with your fringe cases and exceptions. Frankly though, we all have to admit that the monster we created has done far more harm than it ever prevented. 

As for Coinbase, they weren’t even hacked despite headlines to the contrary. Their employees betrayed them, which is worse. Their statement is here. 

AA1 

Moody’s then. The last rating agency to mark down US debt. It’s on Bloomberg, it's on mainstream news but quite honestly the only news story here is that Moody’s has lost any credibility they ever had. 

Fitch did it in 2023, Standard and Poor's did it in 2011. Not quite sure where Moody’s has been for the last 14 years.  Since 2011, US debt has more than doubled. On any basis, per taxpayer, per citizen, nominally. $37 trillion today, $15 trillion when Obama 1 took office.

Nobody is saying that the US isn’t going to pay people back. Of course it is. It’s just that once the USD goes into reverse, which it will one day do, getting US dollars won’t feel so good. There will be lots and lots of them and you might wish that you had bought something else. Like eggs, or a chicken that lays them. 

Back in 2008, just before the collapse of Lehman Brothers. Moody’s had Lehman rated A2 for its long term unsecured debt. That’s an investment grade score. “Low credit risk”. Over the course of hours it was downgraded to junk. I’m not suggesting that they could have known or should have known what was about to come. They couldn’t know. Which calls into question the purpose of the existence of credit rating agencies. 

A credit rating is a retrospective story and a report that simply provides information everybody already has. It provides no alpha at all. The whole thing is likely a pyramid of people simply covering their own backsides with “I checked with Moody’s”.

“I checked with Moody’s” could equally serve as “I didn’t check at all”. 

The Truman Show

Here are our updated numbers for US Debt Holders. The data is courtesy of the US government and reports that the United Kingdom is now the number two holder of US debt. China was of course number one for a long time but for 15 years has been a net seller (rolling off at the long end, still buying at the short end). 

Still, there are three countries on the list that warrant mention. The Cayman Islands (population 80,000) and Luxembourg (population 660,000) control nearly $1trillion in US debt. Some of that will be American money but a lot will be Chinese. It’s quite possible that the shift in Chinese holdings is simply optical. Make it look like we are dumping them to put some pressure on. It is actually quite difficult to make billions of dollars disappear Remember Brewsters Millions)?

Even so, the official numbers tell us that China dumped treasuries in March, it worked. Trump panicked and backed off on tariffs and will likely keep back off until a deal is done. The other dynamic is the maturity of the Chinese holdings. They are now very much skewed to the short end which allows their exposure to the US to run-off quickly without causing diplomatic drama. It also explains why US debt at 10 years and longer is skirting with 5% yield. 

Finally, Japan. Of all the countries in the world to be your largest creditor, that last choice would be Japan. 216% Debt to GDP. Ageing population. Collapsing currency. The story here is quite simple, one day Japan will have to sell its US bonds at a significant scale. I expect the Americans have anticipated this and there is some swap line arrangement that will be magically produced when the crisis finally emerges. 

Over time I have rather softened my view on how these crises might play out. Fiat currency is pretend, its attendant bond markets are also pretend. Despite the appearance of high sophistication and settlement mechanisms and t+2 and bond market people using language nobody understands.

The UK had a massive bond market collapse a few years back. It was a straightforward bailout as a result, took a few hours, and everyone got instantly poorer. Nobody noticed. I expect Japan (and one day America) to be the same. The Americans will just redeem the Japanese debt through the back door. Japan will have lots of USD for its retirees, those USD will drop in value and that will be it. You won’t notice, because you will never know what you didn’t have. 

At the end of The Truman Show, when Truman walks out the door into the real world, the film shows members of the audience—who have been watching Truman all his life—cheering his escape. The transmission ends, and viewers' screens show static. Two security guards who were watching grow bored: “What else is on?

GENIUS

Sen. Elizabeth Warren insisted, “while a strong stablecoin bill is the best possible outcome, this weak bill is worse than no bill at all.”

Despite Senator Warren’s objections. The GENIUS act, which will regulate stablecoins in the US, has now passed the procedural stage in the Senate. It should go to a full floor vote later this week and we can reasonably expect it to pass. It doesn’t actually mean that much other than it brings legitimacy to what is already happening. However, we do expect the stablecoin market cap to surge higher as a result. 

Once money enters the cryptocurrency ecosystem it tends to stay there. So overall, it helps the industry grow and it will help widespread adoption especially via institutions. It’s good. I hope it passes. 

Senator Warren is of course worried people might do the wrong thing though. Perhaps concerned Americans will behave dishonourably. She of course filled out forms for the Texas bar and the Association of American Law Schools in the 1980s listing herself as “American Indian.” A claim she included on election materials when she ran for office. Those claims have now been removed and grovelling apologies issued. 

They really do need term limits for Congress. The average age in Congress is now 64, it’s one of the oldest make ups ever. People say “you shouldn’t be ageist” and I rather have the view that yes we absolutely should be.  

Dimon Geezer

I will simply observe that this is the way you survive as CEO of JP Morgan for 20 years. 

Euro-Trash

“Carefully laid plans”, I’m sure. In fact, everything the WEF does or attempts to do is a carefully laid plan. I am a little bit disappointed with the allegations against Schwab though. After so long at the helm there were bound to be chinks in his armour. The Wall Street Journal reported the following, allegedly included in a letter from an internal whistleblower:

"included allegations that Klaus Schwab asked junior employees to withdraw thousands of dollars from ATMs on his behalf and used Forum funds to pay for private, in-room massages at hotels," 

There is now an investigation and Klaus has resigned and is suing the organization for defamation. It's a bit lame really. 

More interesting perhaps is that Lagarde was the chosen successor. Why? The story of her tenure at the ECB is one of abject failure. Missing targets every year. The European economy is a disaster zone when compared to more vibrant places around the world. Prior to the ECB her track record at the IMF was awful. It included the Argentina debt disaster and the conviction for “negligence in public office” over a 2008 state arbitration payout to businessman Bernard Tapie. 

Yet we get continual puff pieces about her in the press. Remember she was awarded Leader of Century or something in Ireland earlier this year? It may well be that she does not get the WEF job in the end, she still has two years left at the ECB and I doubt they will wait for her.

My main concern with Lagarde is the lack of bravery. There is no plan other than to chug along with the consensus. There is no attempt to make difficult decisions, like kicking people that don’t follow the rules out of the Euro. Make the Euro strong, by actually making it strong. Perhaps that is the job, simply cobble along the currency consensus. Do what must be done to keep the status quo. It’s really uninspiring though. 

She deserves the WEF job. A lifetime of coffee and Powerpoint with global CEOs.  I hope she gets it. 

Further information

Our April 2025 report to investors can be found here.